Friday, January 14, 2011

Crude Oil, Energy and Food.....is This 2008 All Over Again?

Regular visitors here at The Crude Oil Trader may sometimes think we are always bearish and usually pushing the doomsday scenarios. But that couldn't be further from the truth, we do believe in Uncle Warren's "never bet against the U.S.". But what we call the new world economy has proven to us that future demand in China and India will create challenges for us that will make producing affordable food nearly impossible. And if we are to find a way it will take leadership in Washington that we have not seen in......oh, 100 years!

One of my favorite traders in the commodities trading is Dian L. Chu, and this week she wrote.......During the past decade, Finished Goods PPI has risen roughly 35% while the CPI was up about 30%, which seems to suggest producers typically pass through most of the cost increases to the end market.


And news such as the following could only mean that there’s pent up inflation pressure up the supply chain just waiting to be passed through. Commodity prices jumped to two year high on expectations for global economic growth and lower U.S. forecasts for agricultural inventories. The Food Price Index (See Charts Below) compiled by the U.N. Food and Agriculture Organization (FAO) surged 25% in 2010 and hit an all time high in December, at the level even worse than the food crisis in 2008. FAO acknowledged that this is unlikely the peak yet.



And if you think the 25% spike in food prices seems extreme, wait till you check out the Non-Food Agriculture (NFA) prices. The chart below from The Economist shows that the NFA prices were up almost 80% in 2010! NFAs are agricultural materials with heavy industrial applications such as cotton and rubber.





It's really not difficult math, it's as if we can't afford to let the economy get any better or we'll repeat 2008. Our economy can't stand the $4.00 gasoline of 2008, what will happen at $5.00. And it's not a matter of if we get $5.00 gas, just when. Should we be happy if we can just maintain the balance where we are at right now? Well, that isn't possible either as this current "rally" has no real merit as it is build upon a house of cards called QE and QE2. How long will oil rich nations continue to buy that debt?

This surely won't keep us from trading today, just gives us all the more reason to day trade using these pivot, support and resistance numbers.........

Crude oil was lower due to profit taking overnight as it consolidates some of this week's rally. Stochastics and the RSI remain bullish signaling that sideways to higher prices are possible near term. If February extends this week's rally, this year's high crossing at 92.58 is the next upside target. Closes below last Friday's low crossing at 87.25 would confirm that a short term top has been posted. First resistance is this year's high crossing at 92.58. Second resistance is weekly resistance crossing at 93.87. First support is last Friday's low crossing at 87.25. Second support is the reaction low crossing at 84.09. Crude oil pivot point for Friday morning is 91.51.

Natural gas was steady overnight hinting that the two-day correction off Monday's low might be ending. Stochastics and the RSI are neutral signaling that sideways trading is possible near term. Closes below the 20 day moving average crossing at 4.355 are needed to confirm that a short term top has been posted. If February renews the rally off December's low, the 50% retracement level of the June-October decline crossing at 4.876 is the next upside target. First resistance is last Tuesday's high crossing at 4.707. Second resistance is the 50% retracement level of the June-October decline crossing at 4.876. First support is the 20 day moving average crossing at 4.355. Second support is December's low crossing at 3.985. Natural gas pivot point for Friday morning is 4.424.

Gold was lower overnight as it consolidates some of this week's rally. Stochastics and the RSI are turning neutral signaling that sideways to lower prices are possible. If February renews last week's decline, the reaction low crossing at 1331.10 is the next downside target. Closes above the 20 day moving average crossing at 1388.20 are needed to confirm that a short term low has been posted. First resistance is the 20 day moving average crossing at 1388.20. Second resistance is last Monday's high crossing at 1424.40. First support is last Friday's low crossing at 1356.50. Second support is the reaction low crossing at 1331.10. Gold pivot point for Friday morning is 1383.00.


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